WP105_new Privatization Post Communist Countries Survey

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    Centre forEconomicand FinancialResearchat

    New EconomicSchool

    Who Wants toRevise Privatizationand Why?Evidence from28 Post-CommunistCountries

    Irina Denisova

    Markus Eller

    Timothy Frye

    Ekaterina Zhuravskaya

    W ki P N 105

    November 2007

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    1

    Who Wants to Revise Privatization and Why?Evidence from 28 Post-Communist Countries

    Irina Denisova, Markus Eller, Timothy Frye, Ekaterina Zhuravskaya*

    This draft: November 21, 2007

    Abstract:A 2006 survey of 28,000 individuals in 28 post-communist countries reveals overwhelming

    public support for the revision of privatization in the region. A majority of respondents, however,

    favors a revision of privatization that ultimately leaves firms inprivate hands. We identify whichfactors influence individuals support for revising privatization and explore whether respondents

    views are driven by a preference for state property or a concern for the fairness of privatization.

    We find that human capital poorly suited for a market economy with private ownership and alack of privately owned assets increase support for revising privatization with the primary reason

    being a preference for state over private property. Economic hardships during transition and

    work in the state sector also increase support for revising privatization, but mainly due to the

    perceived unfairness of privatization. The effects of human capital and asset ownership onsupport for revising privatization are independent of a countries institutional environment. In

    contrast, good governance institutions amplify the impact of positive and negative transition

    experiences on attitudes toward revising privatization. In countries with low inequality,individuals with positive and negative transition experiences hold significantly different views

    about the superiority of private property, but this difference is much smaller in countries with

    high inequality.

    Keywords: privatization, revision, nationalization, property rights, demand for property rights,

    legitimacy of property rights, transition

    * Irina Denisova ([email protected]) and Markus Eller ([email protected]) are from the Center for Economic and

    Financial Research (CEFIR). Timothy Frye ([email protected]) is from Columbia University and the Harriman

    Institute. Ekaterina Zhuravskaya ([email protected]) is from the New Economic School, CEFIR, and CEPR.

    We thank Erik Berglof, Sergei Guriev, Andrei Shleifer, and the participants of the Russia-China Global Instituteconference for helpful comments. The authors also gratefully acknowledge the financial support by the European

    Bank for Reconstruction and Development. Markus Eller thanks the Austrian Research Association for financial

    support.

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    1. Introduction

    Spurred by a strong consensus among economists and international financial institutions,

    the privatization of state enterprises has been a central element of economic reform over the last

    25 years. Governments from Mexico to Indonesia to Georgia have shed considerable portions of

    their state sector, and by most, but, not all accounts, the beneficial effects of privatization have

    outweighed the costs (e.g., Guriev and Megginson 2007, Megginson and Netter 2001,

    Megginson 2005, McKenzie and Mookherjee 2003). Yet, for all its benefits, privatization is

    widely reviled by the public. Survey results from 17 Latin American countries in 2003 found that

    almost two-thirds of respondents thought that privatization was not beneficial and forty percent

    disagreed with the statement the state should leave productive activities to the private sector

    (Lora and Panizza 2003). A representative survey of Russias population in 2006 found that fifty

    two percent of respondents agree with the statement the majority of private assets in the country

    should be nationalized (CEFIR 2007). A representative survey of citizens in 28 post-communist

    countries in 2006 found that over 80 percent of respondents would like to revise current

    privatization in some way (EBRD 2007 a, b). Given the lack of public support for privatization,

    it is hardly surprising that recent years have seen significant reversals of privatization in Bolivia,

    Kazakhstan, Russia, Ukraine, Venezuela, Zimbabwe and elsewhere.1

    The survey results for the post-communist world are somewhat surprising. Most countries

    in the region conducted considerable privatization in the early to mid 1990s and, after a steep

    initial decline, experienced strong economic growth from the end of the 1990s onwards.2 In the

    last ten years, the average annual real GDP growth in the 28 post-communist countries was 5.5

    percent; moreover, it has been accelerating: in the last five years, countries of the region grew at

    6.8 percent on average. Since the private sector has been the major driver of this economic

    recovery, one would expect a lower demand for re-nationalization in countries with higher

    growth rates. But, in fact, this is not the case (see Figure 1). So, why is privatization so

    1

    Contrary to a widespread view that re-nationalizations in the Former Soviet Union are confined to the energy andmedia sectors, a lot of privatization reversals occurred in manufacturing and financial sectors. For example, in

    Russia, OMZ(United Machine Plants), Siloviye Mashini ("Power machines"),AvtoVAZ(the largest automotive

    plant) and such banks asPromStroyBankand Guta Bankare among the biggest re-nationalized assets; the largest re-privatization in Ukraine was the giant steelmakerKryvorozhstal.2 Cross-national empirical studies from the region find that privatization is generally positively associated with or

    unrelated to economic growth (Zinnes et al. 2001; Estrin et al. 2007; Bennett et al. 2007). Firm-level analyses also

    generally find that privatization has either positive or no effect on performance (cf., Frydman et al. 1999; Djankovand Murrell 2002; Brown et al. 2006; Brown et al. 2007); yet these studies understate the effect of privatization on

    economic growth as they fail to take into account the positive externalities from privatization on de-novo private

    sector development.

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    unpopular? Is it because people prefer state to private ownership? If so, do they believe in the

    superiority of state ownership for ideological reasons or because they expect personal economic

    gains from re-nationalization? Alternatively, do they favor revising privatization to achieve a

    more equitable redistribution of property based on the notion that current owners obtained

    privatized assets unfairly? We address these questions in the paper.Generally, the extent of public support for revising privatization is a critical issue for

    efficiency. The mere threat of revising the privatization bargain weakens the incentives of private

    owners. In order to make formerly state-owned assets more productive, the new owners often

    must make irreversible investments ex ante. If the public favors revising privatization, owners of

    privatized property anticipate the possibility of being expropriated by populist politicians ex post

    and refrain from making productive investments. This, in turn, further increases the support for

    expropriation. Moreover, in the more corrupt countries of the region (such as Russia and

    Ukraine), political elites use public sentiment in favor of privatization revision to redistribute

    assets to themselves or their supporters. As these property redistributions do not increase the

    legitimacy of new owners, the specter of permanent re-distribution from one owner to another

    dramatically weakens private property rights (e.g., Hellman 2002 or Sonin 2003).

    The reasons behind the support for revision of privatization also have important policy

    implications. If support for revising privatization is due to relative losses from returns to human

    capital, then retraining programs that improve skills can be effective. Whereas, if support for

    revising privatization is driven by concerns for fairness, then inefficient redistribution may be

    unavoidable (Alesina and Rodrik 1994).

    We analyze the results of the Life in Transition survey of 28,000 individuals from 28

    transition countries conducted by the World Bank and EBRD (EBRD 2007 a, b). The survey

    asked respondents whether they would like to revise privatization results; and if so, whether they

    prefer privatized assets be re-nationalized and left in state hands, re-nationalized and then re-

    privatized to new owners using a more transparent procedure, or be left with the current owners

    provided they pay additional compensation for their privatized assets. Respondents express

    strong support for revising privatization in all post-communist countries: more than one half of

    the population in each of the 28 countries supports some form of revision of privatization. Less

    than one-third of respondents, however, favored a re-nationalization that leaves firms in state

    hands. Thus, support for revising privatization should not be equated with support for re-

    nationalization.

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    We develop a simple framework for analyzing responses to this question in light of two

    possible reasons for supporting the revision of privatization: a concern for the fairness of

    privatization or a preference for state over private property. We examine how the respondents

    endowments of human capital, assets, ideology, employment history and experience during

    transition affect support for revising privatization. We also examine why individuals hold theseviews.

    3

    Controlling for country-level variation with fixed effects, we examine how individual

    characteristics shape attitudes towards privatization within countries. We find that respondents

    with less human capital and human capital specific to an economy dominated by state ownership

    favor revising privatization. More specifically, older respondents, those in less skilled jobs, in

    poorer health, and with only vocational educations are significantly more likely to support

    revising privatization. Respondents hold this view primarily due to expectations of greater

    relative returns to their specific human capital in an economy with extensive state ownership

    because re-nationalization is expected to reverse wage decompression partly associated with

    privatization (Milanovic 1999). Asset ownership is also related to attitudes towards revising

    privatization. Respondents who own a house or apartment are far less likely to favor revising

    privatization. Again, this view is rooted in calculations of personal gains (or expectations of

    losses). In addition, individuals use their personal experience during the transition to evaluate

    privatization. Most clearly, significant and sustained economic hardships during transition (e.g.,

    food cuts, forced asset sales, and wage cuts) are associated with greater support for revising

    privatization. Respondents who hold this position are generally motivated by a belief in the

    unfairness of privatization outcomes. Similarly, career trajectories during transition affect

    evaluations of privatization: the more years that a respondent worked in the state sector during

    transition, the more likely she favors revising privatization due to concerns over fairness,

    presumably because she believes that she missed out on gains from the initial round of

    3 Scholars have studied extensively the consequences of privatization, but have paid far less attention to support for

    revising privatization. Our study is the first one to examine the motivations that underpin support for revisingprivatization. Studies from the post-communist world have examined attitudes towards market economies or the

    private sector more generally, but only few focus directly on the privatization of state-owned enterprises (cf., Duch

    1993; 1995). Hoff and Stiglitz (2004) present a formal model that incorporates the legitimacy of privatization as a parameter, but offer only illustrative evidence from the post-communist region. Frye (2006; 2007) uses an

    experiment embedded in surveys of business elites and the mass public in Russia to determine how the severity of

    violations of the law on privatization, investments by rightholders, and the provision of public goods by rightholders

    influence support for revising privatization, but his findings are limited to a single country and focus on only a fewvariables of interest. Most closely related to our paper are cross-national studies from Latin America that probe the

    determinants of support for privatization; these studies, however, do not examine the reasons behind popular support

    for re-nationalization (Boix 2005, Graham and Sukhtankar 2004, Lora and Panizza 2003, Panizza and Yanez 2006).

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    privatization. Other aspects of career trajectories during the transition, such as moving from

    wage work to self-employment, or working for longer periods in the private sector, strengthen

    the preference for private over state property, but do not affect attitudes towards revising

    privatization.

    In the second part of our analysis, we examine how a countrys governance institutions, privatization policies, and income inequality influence the differences in individual attitudes

    towards the revision of privatization. Most interesting, country-level factors do not change the

    way in which human capital and asset ownership influence attitudes toward revising

    privatization. In contrast, institutions do affect the link between transition-related experiences

    and support for the revision of privatization. In particular, in countries with better governance,

    stronger democracy, and more extensive private ownership respondents moving from work for

    wages to self-employment are significantly more likely to oppose revising privatization than

    their counterparts in countries with weaker institutions. Good governance and extensive private

    ownership also magnify differences in preferences over property type between those who

    experienced severe economic hardships during transition and the rest of the population.

    Inequality does not directly affect the link between individual transition histories and attitudes

    towards revising privatization, but it does decrease the differences in the belief of the superiority

    of state over private property between those with relatively successful and unsuccessful

    transition histories. Finally, the method of privatization does not significantly affect individual

    attitudes towards the revision of privatization, but the extent of privatization in the respective

    country does: opposition to the revision of privatization by the newly-created class of self-

    employed is larger in countries with more extensive privatization.

    We proceed by presenting data on support for revising privatization in Section 2. We then

    present our hypotheses and empirical methodology in Section 3 and discuss our results in

    Sections 4 and 5. Section 6 describes robustness checks. Conclusions are presented in Section 7.

    2. Public Support for Revising Privatization: Data Summary

    To study public support for revising privatization, we rely on the Life in Transition

    Survey (LiTS). Face-to-face interviews were conducted for a representative sample of 1,000

    individuals in each of 28 post-communist countries in Europe and Central Asia.4

    4 For technical details of the survey, see the Appendix and EBRD 2007a. The exact list of countries is as follows:

    Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, FYR

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    We focus on responses to the following question from LiTS:

    In your opinion, what should be done with most privatized companies? They should be

    (1) Renationalized and kept in state hands;

    (2) Renationalized and then re-privatized again using a more transparent process;

    (3) Left in the hands of current owners provided they pay privatized assets worth;(4) Left in the hands of current owners with no change.

    Table 1 here.

    Table 1 summarizes responses to this question. In sum, twenty nine percent of

    respondents preferred re-nationalization and leaving property in state hands. Seventeen percent

    of respondents supported re-nationalization followed by privatization to new owners using a

    more transparent process. Thirty-five percent of respondents favored leaving property in the

    hands of the current owners provided they pay what the privatized assets are worth. And a little

    over nineteen percent of respondents favored the status quo of leaving privatized assets in the

    hands of current owners with no additional payments. The support for revising privatized

    property varies considerably across countries. Re-nationalization and keeping companies in state

    hands is strongly preferred in Central Asia and the South Caucasus (between 40% in Armenia

    and about 52% in Uzbekistan). The highest support for re-nationalization followed by re-

    privatization using a more transparent process is observed in the South Caucasus and in Croatia.

    In contrast, respondents in Albania, Bulgaria, the Czech Republic, Hungary, Montenegro,

    Romania, and Serbia have a strong preference for leaving property with current owners, provided

    that they pay what the privatized assets are worth (between 48% in Bulgaria and 53% in

    Romania). The least support for revising privatization is found in Belarus, Estonia, and

    Mongolia; where 47, 44, and 37% of respondents, respectively, support leaving most privatized

    companies in the hands of current owners without any change.

    The four alternative answers to this question shed light on why respondents support or

    oppose privatization. We can distinguish between two possible arguments for the revision of

    privatization: a preference for state over private property and a concern about the fairness of

    privatization. In particular, one could support revising privatization because the policy was

    implemented unfairly even though one prefers private to state property; then, one would opt for a

    revision of privatization that leaves property in private hands, i.e., choose alternatives (2) or (3).

    Macedonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Mongolia, Montenegro,

    Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Tajikistan, Ukraine, and Uzbekistan.

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    One could also favor the revision of privatization purely due to a preference for state property,

    and, therefore, choose alternative (1). Moreover, a preference for state property could arise for

    ideological reasons as one could believe that state property is superior to private property in

    general or because one could personally benefit from moving property to state hands. The

    question on revision of privatization does not allow us to differentiate between the twounderlying reasons for a preference for state property. We distinguish between them in

    regression analysis by controlling for respondents ideological views toward state property.5

    Table 2 summarizes our interpretation of the four alternative answers. We consider

    individuals who want any type of change in privatization (those choosing alternative (1), (2), and

    (3) over (4)) as favoring the revision of privatization, while individuals who favor leaving

    property in private hands with no change (alternative (4) over (1), (2), and (3)) as opposing the

    revision of privatization. Further, we consider individuals who favor leaving privatized assets in

    the hands of the current owners provided that they pay what the assets are worth (alternative (3))

    and individuals who chose re-nationalization followed by re-privatization to new owners

    (alternative (2)) as favoring private property, but being concerned about the fairness of

    privatization. Finally, we treat individuals who support re-nationalization and leaving property in

    the hands of the state (alternative (1) over (2), (3), and (4)) as preferring state property to private

    property. It is difficult to know what individuals, who support re-nationalization and leaving

    property in state hands, think about the fairness of privatization. It could be that they have

    concerns about the fairness of privatization and do not think that re-privatization could help, and

    therefore, favor nationalization. However, it is also plausible that they view the process of

    privatization as fair, but favor leaving assets in state hands for ideological reasons or because

    they expect private gains from doing so. We assume that both reasons are equally likely when

    alternative (1) is chosen.

    Table 2 here.

    The construction of this LiTS question permits us to go beyond previous studies which

    have tended only to focus on support for and opposition to privatization. By examining a broader

    range of possible responses, we gain greater insight into the sources of the revision of

    privatization.

    5 It is important to note that different motivations for revising privatization are not mutually exclusive: one could

    favor revising privatization based on fairness concerns and also due to a preference for state property. The survey,however, allowed only one answer to the question on revision of privatization. Therefore, we cannot observe

    multiple motivations for each individual. We can observe multiple motivations for a group of individuals, however,

    as we observe the shares of people from a particular group choosing alternatives (1), (2), and (3).

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    3. Methodology

    3.1. Hypothesis Testing

    We seek to identify the determinants of attitudes towards privatization by runningmultinomial cross-section regressions of the type:

    , (1)

    where i indexes the 28,000 individuals. Yi is a four-category response to the revision of

    privatization question. The outcomes, denoted by k, are the alternative answers: (1) re-

    nationalize and keep in state hands; (2) re-nationalize and then re-privatize; (3) leave in the

    hands of current owners and pay what the assets are worth; (4) leave in the hands of current

    owners without any change. Yi is treated as a multinomial variable. Xi denotes a vector of

    explanatory variables discussed below, and ikis an error term.. We estimate equation (1) using

    the Huber-White sandwich estimator of variance to take individual-specific heteroskedasticity

    into account. In addition, we cluster error terms by primary sampling units (PSUs) fifty in each

    country to adjust the standard errors for intra-PSU correlations.6

    Denote Bk to be the estimated marginal effect of the influence of variable Xi on the

    probability of choosing outcome kfrom the multinomial dependent variable Yi, k=1,2,3,4:

    .

    Based on the results of the estimation, we compute marginal effects on probabilities (Bk) and

    conduct the following three types of hypothesis tests for each of the explanatory variables of the

    vectorXi.

    Test 1: Preference towards the Revision of Privatization.

    We say that a particular characteristic Xi increases the preference towards revising privatization

    if we observe the following relationship between the estimated marginal effects:

    B1 + B2 + B3 > B4 . (2)

    Conversely, ifB1 + B2 + B3 < B4, then the variable Xi is said to decrease support for revising

    privatization.

    6 There are 50 PSUs for each of the 28 transition countries and 20 individuals are chosen randomly from each PSU.

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    Test 2: Preference for State Property.

    We say that a characteristic Xi is associated with stronger preference for state over private

    property if:

    B1 > B2 + B3 + B4. (3)Conversely, ifB1 < B2 + B3 + B4, then Xi strengthens the preference for private over state

    property.

    Test 3: The Unfairness of Privatization.

    We say thatXi is associated with the perception that privatization was unfair if:

    B2 + B 3 > B4. (4)

    Conversely, ifB2 + B3 < B4, thenXi strengthens the view that privatization was fair.

    Table 2 summarizes the three types of tests described in this section. For all the tests, we

    apply standard tests for the equality of coefficients.

    3.2. Explanatory Variables

    To begin, we assess the impact of individual characteristics on attitudes toward revising

    privatization taking the institutional environment and all other country characteristics as given by

    including country-level fixed effects. Conceptually, we distinguish between the following groups

    of explanatory variables (i) human capital, such as skills, education, age, and health; (ii) wealth

    endowments, such as ownership of property and wealth; (iii) transition experiences, including

    labor market history and the extent of economic hardships during transition; (iv) ideological

    factors, such as support for market economies, state ownership, and democracy; and (v)

    subjective perceptions about government and its role, such as trust in public institutions,

    corruption, and importance of law and order. In the next section, we discuss the theoretical

    predictions about the effect of these groups of variables and present the results.

    In all specifications, we control for the respondents gender, location of residence (rural

    vs. urban vs. metropolitan area), religion, whether the respondent belongs to an ethnic minority,

    and current labor market status (employed vs. unemployed). As mentioned above, we also

    control for the country of residence with country dummies.

    To sum up, we use the following vector of covariatesXi from equation (1) in our baseline

    specification:

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    Xi = [HCi,Wi, Ti,Ii, Si,FCi, Ci]. (5)

    HCi denotes a set of human capital individual-level variables, Wi denotes the assets

    endowments, Ti represents transition experiences,Iistands for ideological factors, Si denotes the

    set of subjective perception variables,FCi stands for country-specific dummies, and Ci represents

    other individual controls. All variables are described and summarized in Tables A1 and A2 in theAppendix.

    7As a refinement of the baseline estimation, we also include interactions of selected

    individual-level characteristics with the vector of covariates.

    In a final step, we examine how country-level characteristics (such as governance

    institutions, democracy, inequality, or method and extent of privatization) affect individual

    attitudes towards support for revising privatization. To measure the quality of governance

    institutions, we use the corruption perception index from Transparency International; the

    democracy index from POLITY IV; and the World Bank indices of voice and accountability,

    political stability, government effectiveness, rule of law, control over corruption, and regulatory

    quality (Kaufmann, Kraay, and Mastruzzi, 2006). To examine whether the degree of country-

    specific income inequality has an impact on the revision of privatization, we use the most recent

    Gini coefficients, as provided by the World Bank (2005) and additional sources. We use the

    following indicators of privatization at the country level: the extent of privatization by 2006, the

    number of years from the start of privatization, and whether privatization transferred property

    primarily to enterprise insiders or outsiders. Detailed definitions and summary statistics for the

    national-level variables are presented in Tables A1 and A3 in the Appendix.

    We analyze the impact of national-level variables by exploring the possibility that the

    effects of individual-level factors vary across countries. Thus, we include interaction terms

    between individual-level variables and national-level variables of interest into our vector of

    covariatesXi. Note that we continue to control for the institutional environment in each country

    with country-fixed effects. Thus, the augmented vector of covariates takes the following form:

    Xi= [Institutioni Individuali, Xi],

    where Institutioni, is the country characteristic of interest, Individuali is the individual

    characteristic of interest andXi is defined in equation (5).8

    7As we discuss in the robustness section, the exclusion of subjective perceptions measures from the set of covariates

    (due to their possible endogeneity) does not affect coefficients and significance of other variables.8 Note that we subtract the sample mean from the variables in the interaction term before taking the interaction in

    order to have the direct effect being estimated at the mean of all explanatory variables.

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    Tables 3 and 4 present the results of our empirical estimation. Both tables have the same

    structure. Columns 2 to 5 report the estimated marginal effects for the four outcomes of the

    dependent variable, with z-statistics in brackets. The next three columns reportp-values of the

    tests described in Section 3.1. The last three columns present the implications of these tests. In

    particular, the ninth column reports the estimated effect of a particular characteristic in Xi on thepreference for or against revising privatization. The next column reports the results of the tests of

    whether this component ofXi makes respondents more likely to favor revising privatization

    based on their preference for state versus private property. Similarly, the last column presents

    results of testing whether or not Xi affects respondents considerations of the fairness of

    privatization. If there are no statistically significant results, the cells are left blank in these three

    conclusion columns.

    4. Who Supports Revising Privatization?

    In this section, we present our hypotheses and empirical results about the individual-level

    determinants of support for revising privatization. We organize our presentation by discussing

    predictions and results for each group of factors separately.

    4.1. Individual Endowments of Human Capital

    Privatization may affect the career prospects of different groups of people differently.

    Individuals with higher skills and better opportunities to take advantage of transition are

    expected to express greater support for privatization and oppose its revision. Groups with skills

    and networks specifically developed for an economy dominated by state-owned firms may have

    strong incentives to oppose privatization fearing diminished career opportunities. For instance,

    older people are expected to have a vested interest against privatization since the private sector is

    known to provide relatively lower, if any, return to the experience obtained during the pre-reform

    period, while the state sector is known to provide positive returns to experience (e.g., Brainerd

    1998).9

    In sum, older, less healthy, less educated, and less skilled individuals are expected to be

    especially strong supporters of revising privatization based primarily on how it shapes their

    economic prospects; and, therefore, their views are motivated by their relative gains from state

    9In labor market studies, age being a proxy for experience is often considered to be positively associated with

    human capital (e.g., Willis 1986). As workers gain experience, they accumulate human capital. This relationship is

    less pronounced in the post-communist countries because the older workers were trained in skills that are far less

    applicable to current market conditions compared to their younger counterparts.

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    versus private property. There is no clear-cut predication about how human capital is related to

    the likelihood that a respondent evaluates privatization based on concerns for fairness. One

    might expect respondents with higher education to have greater capacity to judge information

    related to the process of privatization. In that case, the effect of human capital on views about

    revision of privatization would depend on the actual privatization process in the country.We measure human capital by the highest educational degree obtained by the respondent

    (ranking from no degree to post graduate degree), age, self-reported health status, and by the

    skill-type of the respondents occupation in 2006. LiTS provides data on occupation for those

    who worked for wages in any of the years following 1989. We distinguish between occupations

    requiring high skills and occupations requiring low or medium skills.

    Panel A of Table 3 presents the results for an estimation of the baseline equation which

    focuses on individual-level variables and takes the institutional environment as given. We find

    that the human capital variables are generally good predictors of attitudes toward revising

    privatization. Age is positively associated with support for revising privatization. Older

    respondents express this preference due to their support for state property. A 10-year increase in

    the age of a respondent increases the probability of support for revising privatization by 0.7

    percentage points, and for re-nationalization as a means of revising privatization by 1.5

    percentage points. The result is consistent with the vested interest argument as older respondents

    have accumulated skills more relevant for the state sector than for the private sector.

    Interestingly, age is not related to a belief that privatization should be revised based on concerns

    for fairness.

    Skills have a similar effect. Workers with low skills are more likely to favor revising

    privatization, and the reason respondents hold this view is their support for state property.

    Holding a low-skilled occupation increases the probability of supporting the revision of

    privatization by 2 percentage points, and of supporting a re-nationalization that leaves assets in

    state hands by 5 percentage points compared to the reference group.10

    Again, the low skilled hold

    this belief because they support state property. Skills are unrelated to concerns for fairness of

    privatization. In addition, individuals in poor health are more likely to favor revising

    10 The reference group here is those working for wages in high-skilled occupations, the self-employed and those not

    working.

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    privatization. They hold this view for both reasons: they favor state property and view

    privatization as unfair.11

    The relationship between education and attitudes toward revising privatization is

    somewhat more complex because the level of education in transition economies does not reflect

    the possession of skills specific to a market economy. The most clear-cut pattern in the effects ofeducation is that the educational level monotonically increases concerns over the fairness of

    privatization. Presumably, this is because more educated individuals are more aware of the actual

    process of privatization. As far as the preference for state vs. private property is concerned,

    respondents with higher education (i.e. university, college, or postgraduate degree) have a strong

    preference for private property compared to the rest of the population.12

    For example, the

    probability that a respondent with a higher degree supports a re-nationalization that leaves assets

    in state hands is 2.9 percentage points lower than for a secondary school graduate. As a result of

    the interplay of the two motivations, respondents with a high school (i.e. secondary) degree are

    significantly more likely to oppose revising privatization than respondents with less than

    secondary education (due to unfairness considerations). In contrast, they are less likely to oppose

    revision of privatization than respondents with professional and vocational training (due to both

    reasons). And they are equally likely to support privatization revision as respondents with higher

    education (but for a different reason: high school graduates are less in favor of private property,

    but also consider privatization as more fair compared to college graduates).

    In sum, individuals with human capital suited for an economy with extensive state

    ownership (i.e., old and low-skilled individuals) are especially likely to favor revising

    privatization and are likely to hold this view due to a preference for state property rather than due

    to fairness considerations. Because we control for the respondents preferred extent of state

    ownership directly (as we discuss below in Section 4.4), the preference for state property is

    likely to be rooted in expectations of personal gains from reversing privatization.13

    11 Privatization may influence the quality and costs of public services. As Boix (2005: 7) notes: given high fixed

    costs in the investments they need to undertake, privatized companies first target high-income clients and tailor theirservices in way that discriminates against areas with a high concentration of low-income individuals. This may

    lead the individuals with poor health as they have a particularly strong need to have an access to healthcare to

    oppose privatization.12 There is no difference in preferences for state vs. private property among respondents with different educational

    levels below higher education.13 It is interesting to put these findings in comparative perspective. Studies from Latin America have mixed results

    about the effect of human capital on attitudes towards privatization. In the study of 17 Latin American countries,Panizza and Yanez (2006) find that those with a professional degree were strong supporters of privatization, but also

    report that respondents with a moderate level of education were significantly more likely to oppose privatization.

    Graham and Sukhtankar (2004) use a similar data set and find that education was associated with higher levels of

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    4.2. Assets and Wealth

    Wealth and property ownership may also shape attitudes toward the revision of

    privatization. Richer individuals with accumulated private assets are more likely to favor private

    property over state property because of fears that re-nationalization and expropriation may notstop at large private businesses, but may potentially affect their personal holdings. Personal

    assets could also be related to the likelihood that respondents evaluate privatization on fairness

    grounds if respondents obtained their assets through privatization. We identify property owners

    as respondents living in a household in which any household member (including the respondent)

    is the majority owner of a house or an apartment. We measure individual wealth using data from

    LiTS on the annual consumption expenditures for each household (for more details see Table

    A1).

    We find that ownership of a home or apartment is strongly associated with opposition to

    revising privatization and this view is driven solely by a preference for private property. The

    probability that an individual who owns a home or apartment opposes the revision of

    privatization is 2 percentage points higher than for an individual who does not own a home or

    apartment. Property ownership is also associated with a 3.5 percentage point increase in

    opposition to a re-nationalization that leaves assets in state hands. Similarly, respondents

    reporting a movement up the income ladder relative to 1989 strongly oppose the revision of

    privatization and the main reason behind this view is a preference for private property. In none

    of these cases do respondents evaluate privatization based on fairness considerations.

    In contrast, wealth has a less straightforward relationship towards the revision of

    privatization. Individuals from the upper part of the wealth distribution (compared to individuals

    from the lower part of the distribution) are more likely to view privatization as unfair and support

    redistribution through taxation (i.e., alternative (3)); but, at the same time, they oppose

    expropriation of current owners through re-nationalization where property is kept in state hands.

    As a result, the overall effect of wealth on revising privatization is ambiguous.14

    support for privatization in 2001, but the relationship was reversed in 2002. Boix (2005) uses data from Mexico in

    1998 and 2003 and Peru in 2003 and finds no relationship between education and support for privatization in either

    country.14

    The fact that members of the upper income deciles express concern with the fairness of privatization may be lesssurprising than it appears at first glance. In LiTS these individuals are likely to belong to the middle class rather than

    to the upper class because of relatively high income inequality in transition countries and the inherent under-

    representation of the upper class in individual and household surveys (Deaton 2005). Therefore, the effect of wealth

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    4.3. Individual Transition Experience

    Identifying the consequences of privatization is difficult even for knowledgeable citizens.

    Privatization is often conducted as a part of a package of reforms, which may make it hard for

    individuals to identify its consequences. Furthermore, privatization is a technically complexpolicy whose effects may take years to appear. Given the difficulty of evaluating privatization,

    individuals may use their personal experience during transition as a metric for evaluating

    privatization. Individuals who adjusted poorly to the new economic conditions, i.e., those who

    experienced sustained periods of wage cuts or food cuts, may attribute their hardships to

    privatization and are likely to favor revising it. Similarly, respondents whose career trajectories

    were negatively affected by the transition those who held many jobs, or failed to move from

    working in the state sector to entrepreneurship are also likely to blame privatization for their

    woes and support revision. In sum, individuals experiencing significant economic losses or

    negative career trajectories during the transition may support revising privatization and may hold

    this view for two reasons. If they expected re-nationalization to put an end to their losses, they

    would have a preference for state ownership; and if they attributed their losses to inequities in the

    process of privatization, they would support revising privatization out of fairness concerns.

    LiTS data enable us to reconstruct each individual job trajectory since 1989. We observe

    whether the respondent worked for wages (in the state or private sector, in a high- or low-skill

    occupation), was a self-employed or an entrepreneur, or was not employed in each year between

    1989 and 2006.15

    To identify the impact of individual job trajectories for each respondent, we

    calculate the number of jobs held since 1989, the number of years working in the state sector, the

    number of years working in the private sector, and a large number of variables reflecting the

    direction of job changes, e.g., moves from state to private sector, from low-skill to high-skill

    occupation, or from work for wages to self-employment and entrepreneurship.

    Remarkably, with one notable exception i.e., the number of years worked in the state

    sector employment trajectories are not significantly related to support for revising

    privatization. They do, however, shape whether respondents evaluate privatization based on a

    preference for property type or concerns for fairness. For example, the longer an individual

    worked for wages in either the state or private sector, the more likely she is to view privatization

    on the perception of fairness of privatization may actually be U-shaped with the middle class being the most

    concerned with fairness.15 We cannot distinguish between self-employed and entrepreneurs, however.

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    as unfair. While work in the private sector is related to a belief in the unfairness of privatization,

    it does not diminish support for private property: the longer a respondent worked for wages in

    the private sector, the more likely she is to favor private property. As a result, the two

    motivations cancel each other out: private sector veterans do not express significant support for

    or against revising privatization. The probability of opposing state property increases by 3.3percentage points for each ten year increase in work experience in the private sector. The result

    is not symmetric for those working in the state sector: the length of work in the state sector is not

    associated with stronger preferences towards state property, but it is the only career trajectory

    variable that directly predicts support for revising privatization. A ten-year increase in state

    sector employment decreases the probability of recognizing the status quo privatization outcome

    by 2.3 percentage points. The main reason behind this stance is the perceived unfairness of

    privatization.

    Job turnover, the direction of career trajectory, and changes in the type of ownership of

    enterprises where the respondents worked for wages, do not have a significant effect on attitudes

    towards the revision of privatization, private vs. state property, or the fairness of privatization

    once we control for the level of skills and the years of experience in the state and private

    sectors.16

    In contrast, the move from work for wages to self-employment has an important and

    robust effect: those who moved from work for wages to self-employment are strongly in favor of

    private property. The probability that they oppose re-nationalization is 6 percentage points higher

    compared to all other respondents. There is no evidence that this group has a different attitude

    about the fairness of privatization than the rest of the population and their support for private

    property does not lead them to hold significantly different views on revising privatization

    compared to the rest of the population.

    In addition, we examine the impact of important economic hardships during transition,

    such as the number of years that the respondent experienced wage cuts, food cuts, or needed to

    sell household assets. We find that individuals who experience extensive economic losses

    related to transition are significantly more likely to favor revising privatization. Individuals who

    experienced relatively small losses (such as wage cuts and asset sales) tend to hold this view due

    to concerns about the fairness of privatization. More extreme forms of deprivation (such as cuts

    in basic food consumption) undermine confidence in private ownership: respondents who

    16 We omit variables that reflect moves between private and state sector employment and high- and low-skilled jobs

    from the list of regressors because they have no significant impact themselves and have no effect on coefficients of

    other explanatory variables.

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    endured long periods of cuts in basic food consumption prefer state ownership. An additional

    year of wage cuts or wage arrears decreases the probability of recognizing the status quo

    privatization outcome by 0.6 percentage points, and an additional year of having to sell

    household assets decreases this probability by 0.7 percentage points. An additional year of

    having to cut down on basic food consumption increases support for revising privatization by 0.2percentage points.

    4.4. Ideology and Perceptions of Government

    The respondents perceptions of government institutions affect support for revising

    privatization. Perceptions of government quality, especially the perception of the current level of

    corruption, are strong predictors of support for revising privatization. Respondents who view the

    government as more corrupt in 2006 than in 1989 and those who view law and order as very

    important support the revision of privatization on fairness grounds. Finally, ideological factors

    are also strongly associated with attitudes toward privatization. In particular, respondents who

    express a normative preference for autocracy over democracy, for central planning over the

    market, and for state ownership over private ownership of large assets are significantly more

    likely to support revising privatization than respondents who hold the opposite views.

    4.5. Individual-Level Interactions

    Panel B of Table 3 presents two interesting interaction effects: (1) between wealth and

    education and (2) between age and skills. An increase in the respondents level of education

    leads to an increase in the effect of wealth on the likelihood of support for the status quo. This

    view is driven by a greater increase in the perception that privatization was fair among educated

    wealthy individuals compared to uneducated wealthy individuals. In addition, an increase in

    respondents skills reduces the effect of age on support for the revision of privatization: older

    respondents have a less negative view of the status quo privatization outcome than younger

    respondents when their skills are high. This result suggests that the opportunities gained by

    possessing higher skills offset the negative effect of age. More broadly, these results underscore

    the importance of human capital suitable for a market economy for the legitimacy of

    privatization.17

    17 The controls for gender, household size, location, current labor market status and religion reveal that males are

    more likely to support private property, and rural households are more likely to be state property proponents as

    compared to metropolitan households. At the same time these factors are not significantly related to support for or

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    5. Do Institutions and Policies Shape Individual Attitudes towards Revising Privatization?

    In this section, we test whether the effects of individual-level factors vary across

    institutional and economic environments. On the one hand, good governance institutions may

    increase the opportunities available to potential and actual economic winners relative to the restof the population and thereby magnify the impact of positive transition experiences on attitudes

    towards revising privatization. The same reasoning can be applied to the extent of privatization.

    This logic suggests that good institutions and broad-based privatization should amplify the

    effects of positive and negative transition experiences on attitudes toward revising privatization.

    If this view were correct, economic winners should be even stronger opponents (and losers

    stronger proponents) of revising privatization. On the other hand, if associated with an elaborate

    social safety net, good governance institutions may reduce differences in attitudes towards

    revising privatization between transition winners and losers, both by leveling the playing field

    and by promoting procedural fairness in the making of privatization policy. In this case, good

    institutions should minimize differences between economic winners and losers from transition.

    The way in which privatization was conducted also may affect the link between

    individual work trajectories and attitudes towards privatization. An insider-dominated

    privatization may give workers in privatized companies more shares and therefore a higher stake

    in protecting privatization compared to workers under outsider-dominated privatization. Thus,

    the mode of privatization is expected to affect the difference in attitudes toward revising

    privatization between workers who remained in the state sector and those who did not.

    We find that the effects of human capital, assets, and income on views about the revision

    of privatization do not depend on the governance institutions, inequality, or the method and scale

    of a countrys privatization. This is an important finding that suggests the broader relevance of

    our individual-level results because they turn out to be robust across a range of institutional and

    economic environments.18

    In contrast, the effects of individual transition trajectories on attitudes toward the revision

    of privatization do depend on the institutional setting. In Table 4, we present estimates of

    interactions of country-level indicators of governance, privatization, and inequality with two

    variables: (1) a dummy variable indicating respondents who moved from work for wages to self-

    opposition to the revision of privatization. The only exception is that members of an ethnic minority are significantly

    more likely to oppose the revision of privatization on the grounds that privatization was fair.18 To save space, we do not report results for these interaction terms.

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    employment or entrepreneurship (an indication of a successful adjustment to transition) and (2)

    the number of years in which respondents experienced cuts in basic food consumption (an

    indication of severe hardship during transition).

    We find that higher scores on indices of democracy and voice and accountability tend to

    reinforce both the effect of moving from work for wages to self-employment and the effect ofhaving to reduce basic food consumption. In more democratic countries and countries with

    better voice and accountability, those who moved from work for wages to self-employment are

    even more likely to oppose the revision of privatization than their counterparts in a less

    democratic and less transparent environment. One standard deviation increases in the democracy

    and voice and accountability indices lead to 4.8 and 3.7 percentage point higher support for the

    status quo privatization outcome by those who moved from wage work to self employment or

    entrepreneurship. Thus, individuals who managed to adjust well to the new economic conditions

    express greater support for privatization where governance institutions are stronger.

    In contrast, governance institutions do not affect the difference in attitude towards the

    revision of privatization between individuals who had to cut down on food and the rest of the

    population. Yet, stronger democracy and accountability do reinforce the difference in

    preferences of these two groups concerning the superior property type. Those who experienced

    economic hardships express stronger support for state property (relative to the rest of the

    population) in countries with good governance institutions.

    We also explored how various aspects of privatization interact with individual transition

    histories (and other individual-level variables). The method of privatization does not affect the

    link between individual characteristics and attitudes towards privatization revision. But the scale

    of privatization and the time since the start of privatization do have significant effects: more

    extensive and earlier privatizations reinforce the differences in supporting the status quo between

    those who moved to self-employment and entrepreneurship and the rest of the population. This

    suggests that more extensive privatization increases opportunities for those moving from wage

    work to entrepreneurship. In addition, individuals, who experienced many years of food cuts

    express even more distrust for private property in countries with more extensive privatization

    programs.

    Finally, we examine whether the level of economic inequality conditions the impact of

    transition experiences on evaluations of privatization. On the one hand, inequality may

    exacerbate differences in the attitudes toward revising privatization between winners and losers

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    from transition as only the narrow group of winners gains from privatization. On the other hand,

    inequality may reduce differences between groups with positive and negative transition

    experiences by generating political and social instability with negative consequences for all of

    them (except for the small group of very rich who are typically underrepresented in a household

    survey). The same logic applies to the effect of inequality on peoples views about privateversus state property.

    We find that income inequality has a significant effect on the link between individual

    transition histories and preferences toward state versus private property but not on preferences

    over privatization revision. The difference between the effects of positive and negative

    transition histories on the preference over property type is significantly reduced in high-

    inequality countries. In countries with a Gini coefficient which is one standard deviation below

    the mean, those who moved to self-employment have compared to the rest of the population

    a 10 percentage point greater opposition to re-nationalization that leaves assets in state hands. In

    contrast, in countries with a Gini coefficient one standard deviation above the mean, those who

    moved to self-employment have only a 1 percentage point greater opposition to re-

    nationalization. Similarly, respondents who reduced basic food consumption have a 0.5

    percentage point higher support for re-nationalization in countries with a Gini coefficient one

    standard deviation below the mean; while this difference is only 0.2 percentage points in

    countries with a Gini coefficient one standard deviation above the mean. Thus, we find that

    economic inequality reduces differences in the attitudes of transition winners and losers towards

    state versus private property.

    6. Robustness Checks

    Our results are robust to several refinements and alternative specifications, including

    different estimation techniques, different specifications, and different sets of covariates.19

    As alternatives to the multinomial logit estimation, we employ multinomial probit

    estimation. The results remain unaffected. We also experimented with other specifications (such

    as combining the four responses into two categories and running simple probit, logit, and OLS

    regressions) and the results did not change significantly.

    In the baseline specification, we adjust the standard errors to allow for clusters in error

    terms within PSUs to account for intra-PSU correlation. Alternatively, we have also added PSU

    19 The results of all robustness checks are available from the authors upon request.

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    fixed effects (i.e., dummies for each PSU) dropping the location variables and the country

    dummies. The effects of interest remain robust to this specification with one notable exception:

    after controlling for PSU fixed effects, correlation between the perception of unfairness of

    privatization and transition-related hardships disappears. This, however, is explained by the fact

    that many transition-related hardships are PSU-specific rather than individual-specific.We apply a weighting scheme for the summary statistics to account for the fact that the

    LiTS data turned out to be biased towards elderly and female respondents due to non-responses

    even though the sample was originally constructed to be representative. In the baseline

    regressions we do not apply this weighting scheme, but instead, introduce controls for age and

    gender. When we use the weights in the regression analysis, the results do not change.

    In the baseline specification, we include respondents attitudes toward a market economy,

    democracy, the preferred extent of state ownership of large companies, as well as perceptions of

    government as regressors. Yet, these variables may be endogenous to respondents views about

    revising privatization. If we exclude variables related to ideology and other perception variables

    from the list of regressors, the results for education, wealth, and ownership of property become

    more pronounced (as one would expect because of omitted ideology in these regressions), while

    the results for transition-related variables are unaffected.

    We repeated our empirical exercise for each country individually to examine country-

    specific patterns. As for the human capital and assets variables, the significance of the results

    varies somewhat across countries, but, qualitatively, the results are broadly consistent across

    countries. In contrast, we do find some differences across countries for the effects of career

    trajectories and transition hardships. These differences, however, are consistent with our analysis

    of Section 5.

    In addition, the results are robust to dropping the two most authoritarian countries

    Uzbekistan and Belarus from the sample and to using the most recent values instead of the

    over-time averages for the institutional indicators.

    7. Conclusion

    Despite the strong support for privatization among economists and international financial

    organizations, public support for privatization is surprisingly low. Using a survey of 28,000

    respondents, we report an extremely high level of support for revising privatization in 28 post-

    communist countries. More than 50 percent of the population in each of the 28 countries and 80

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    percent of all respondents support some form of revision of privatization from levying additional

    taxes on current owners of privatized assets to the full expropriation and re-nationalization of

    assets. Less than a third of respondents, however, favor a re-nationalization that leaves firms in

    the hands of the state.

    We identify factors that influence respondents preferences over revising privatizationand explore their underlying motives for holding these views. Human capital poorly suited for a

    market economy with private ownership, lack of privately owned assets, economic hardships

    experienced during transition, and exposure to work in the state sector significantly increase

    support for revising privatization. The lack of human capital and private assets influence support

    for revising privatization primarily via a preference for state property over private property;

    whereas transition-related hardships and work in the state sector mainly influence support for

    revising privatization due to the perceived unfairness of privatization.

    The relationship between attitudes towards privatization and human capital and wealth is

    unaffected by a countrys institutional environment, the level of privatization, or the extent of

    inequality, which suggests the general relevance of these results. In contrast, the relationship

    between attitudes towards privatization and transition experiences is affected by these country

    characteristics. In countries with better governance, stronger democracy, and more pervasive

    private ownership, respondents moving from work for wages to self-employment (and

    entrepreneurship) are more likely to oppose revising privatization than their counterparts in

    countries with weaker institutions. Better governance institutions and low inequality reinforce

    the preference for state over private property for individuals who experienced significant

    economic losses during transition. Low inequality also reinforces differences between the effects

    of positive transition experiences on the preference over property type.

    Our results suggest broader implications. First, respondents express fairly diverse views

    over how privatization should be revised. Indeed, almost one half of those who favor revising

    privatization want assets to ultimately end up in private hands. Therefore, one should not equate

    support for revising privatization with a preference for state property. Second, people differ in

    their motivation for revising privatization. Discriminating between these motivations is

    important as they suggest very different policies to increase the legitimacy of privatization. Some

    oppose privatization because they prefer state ownership, which in turn could be rooted in

    ideology or personal interest. Others favor private property in principle, but oppose privatization

    because it resulted in an unfair distribution of wealth. If public support for the revision of

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    privatization is rooted in relative losses from declining returns to human capital (as is the case for

    less skilled and long-time state sector workers), then retraining programs designed to match

    skills with demand from the new market sectors may prove to be an effective tool. If, however,

    public support for the revision of privatization is driven by concerns of fairness, governments

    may have to turn to redistributive policies which necessarily generate distortions in theinvestment decisions of current owners. An optimistic lesson from our results is that most of the

    support for the revision of privatization due to unfairness comes from negative personal

    experiences during the transition, and these transition experiences are likely to play a smaller

    role in shaping attitudes over time.

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    Reforms? Research Department, Inter-American Development Bank, July 2006, pp. 1-29.

    Sonin, Konstantin (2003) Why the Rich May Favor Poor Property Rights Protection, Journalof Comparative Economics, vol. 31(4), December, pp. 715-731.

    Willis, Robert J. (1986) Wage Determinants: A Survey and Reinterpretation of Human CapitalEarnings Function, in Ashenfelter, O. and Layard P.R.G. (eds.)Handbook of Labor

    Economics, 1, pp. 45-50 Amsterdam: North Holland

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    World Bank (2005) Growth, Poverty, and Inequality - Eastern Europe and the Former SovietUnion, Washington, D.C.

    Zinnes, Clifford, Yair Eilat, and Jeffrey Sachs (2001) The Gains from Privatization in

    Transition Economies: Is Change of Ownership Enough?IMF Staff Papers, Special Issue,

    48, pp. 146-170.

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    albania

    armeniaazerbaijan

    belarus

    bosnia

    bulgaria

    croatia

    czechrep

    estonia

    macedonia

    georgia

    hungary

    kazakhstan

    kyrgyzstan

    latvialithuania

    moldova

    mongoliamontenegro

    poland

    romania

    russia

    serbia

    slovakrep

    slovenia

    tajikistan

    ukraine

    uzbekistan

    1

    0

    20

    30

    40

    50

    Publicsupportforrenation

    alization

    0 5 10 15Real GDP growth, avg. 1999-2006

    Figure 1. Vertical axis: Percent of countries populations who agree that most privatized

    companies should be renationalized and kept in state hands (Source: Life in Transition Surveyby the EBRD and the World Bank, EBRD 2007b). Horizontal axis: Average annual growth rate

    of real GDP between 1999 and 2006 (Source: EBRD, selected economic indicators as of May

    2007).

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    Table 1.In your opinion, what should be done with most privatized companies? They should be

    Renationalized

    and kept in

    state hands

    Renationalized and

    then re-privatized

    again using a more

    transparent process

    Left in the hands of

    current owners

    provided that they payprivatized assets

    worth

    Left in the hands of

    current owners with

    no change

    Albania 14.5 18.7 51.7 15.2Armenia 40.5 22.6 26.8 10.1

    Azerbaijan 41.4 26.4 8.6 23.7

    Belarus 20.4 7.1 25.8 46.7

    Bosnia 25.0 17.9 43.4 13.7

    Bulgaria 28.8 15.8 48.3 7.2

    Croatia 23.9 29.1 41.0 6.0

    Czech Republic 13.0 11.8 50.6 24.6

    Estonia 22.4 10.7 22.6 44.4

    FYR Macedonia 35.3 20.7 38.0 6.0

    Georgia 30.9 31.9 14.0 23.2

    Hungary 24.6 10.2 51.9 13.3

    Kazakhstan 47.5 13.4 26.7 12.5

    Kyrgyzstan 43.8 11.2 17.7 27.4

    Latvia 19.1 14.2 40.4 26.4

    Lithuania 17.6 17.3 38.3 26.8

    Moldova 34.8 14.6 32.7 17.9

    Mongolia 19.9 22.6 21.0 36.5

    Montenegro 19.3 20.6 51.3 8.8

    Poland 22.4 20.4 37.2 20.0

    Romania 19.9 14.4 53.0 12.8

    Russia 36.7 13.3 31.5 18.5

    Serbia 20.0 18.3 50.7 11.0

    Slovakia 34.2 8.7 39.9 17.1Slovenia 12.4 19.6 36.6 31.4

    Tajikistan 48.4 13.7 21.9 16.0

    Ukraine 43.0 12.5 31.9 12.6

    Uzbekistan 51.6 10.6 22.6 15.3

    Total, % 29.0 16.7 34.8 19.4

    Cumulative, % 29.0 45.7 80.6 100.0

    Observations 8 077 4 654 9 697 5 412

    Notes:

    We are applying a weighting scheme for these summary statistics to ensure that the population as a

    whole is represented, taking into account the age and gender distribution of the population in eachcountry (see EBRD 2007a: 6). The reported percentages have Bernoulli distribution. Their

    standard errors depend on the actual percentage and the number of observations (1000 per

    country); thus, they are equal to , wherepi denotes the percentage points as

    reported in the table. The magnitudes of the SE indicate that if a difference between any twocountries exceeds 3 percentage points, it is statistically significant. The result holds for each of the

    four alternatives.

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    Table 2. Interpretation of outcomes and types of hypothesis tests for marginal effects

    Outcomes:

    Re-

    nationalized

    and kept in

    state hands

    Re-

    nationalized

    and then re-

    privatizedusing a more

    transparent

    process

    Left in the

    hands of

    current

    owners

    provided

    that they pay

    privatized

    assets worth

    Left in the

    hands of

    currentowners with

    no change

    (1) (2) (3) (4)

    Test:

    Preference for or

    against

    privatization

    revision:For vs. Against

    For For For Against B1+B2+B3>B4

    Reason:

    State vs. Private State Private Private Private B1>B2+B3+B4

    Reason:

    Unfair vs. FairBoth equally Unfair Unfair Fair B2+B3>B4

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    Table 3. Multinomial logit. Marginal effects reported.

    Panel A. Direct effects

    In your opinion, what should be done with most privatized

    companies? They should be

    Re-

    nationalized

    and kept in

    state hands

    Re-

    nationalized

    and then re-

    privatized

    again using a

    more

    transparent

    process

    Left in the

    hands of

    current owners

    provided that

    they payprivatized

    assets worth

    Left in the

    hands of

    current

    owners withno change

    Revision

    (B1+B2+

    B3=B4)

    Property

    type

    (B1=B2+

    B3+B4)

    Fairne

    (B2+B

    B4)

    B1 B2 B3 B4 p-value p-value p-valu

    0.0015 0.0002 -0.0009 -0.0007 0.00 0.00 0.90

    [4.82]*** [0.58] [2.87]*** [3.12]***

    0.0481 -0.0134 -0.0154 -0.0193 0.08 0.00 0.66

    [3.21]*** [1.22] [1.06] [1.75]*

    0.0061 -0.0171 -0.0109 0.0218 0.03 0.62 0.01

    [0.50] [1.55] [0.80] [2.22]**

    0.0079 0.0014 0.0042 -0.0136 0.09 0.46 0.25

    [0.75] [0.16] [0.36] [1.70]*-0.0287 0.0123 0.0201 -0.0037 0.69 0.02 0.05

    [2.35]** [1.26] [1.54] [0.40]

    0.0126 0.0016 0.0006 -0.0149 0.00 0.01 0.03

    [2.60]*** [0.41] [0.11] [3.69]***

    -0.0350 0.0002 0.0140 0.0208 0.03 0.01 0.72

    [2.72]*** [0.02] [1.05] [2.21]**

    -0.0057 0.0039 0.0040 -0.0021 0.10 0.00 0.00

    [3.24]*** [2.76]*** [2.09]** [1.64]

    -0.0071 -0.0025 0.0044 0.0052 0.00 0.00 0.29

    [3.67]*** [1.56] [2.15]** [3.45]***

    0.0046 0.0078 -0.0106 -0.0018 0.65 0.38 0.91

    [0.87] [1.87]* [1.93]* [0.45]0.0007 -0.0003 0.0020 -0.0023 0.00 0.38 0.00

    [0.87] [0.49] [2.58]*** [3.75]***

    -0.0033 0.0005 0.0026 0.0001 0.85 0.00 0.04

    [3.26]*** [0.69] [2.65]*** [0.19]

    -0.0618 -0.0137 0.0512 0.0243 0.18 0.00 0.71

    [3.13]*** [0.82] [2.36]** [1.35]Moved from work for wages to self-employment, 1989-2006

    Transition-related employment history:

    Number of jobs, 1989-2006

    Years worked for wages in state sector, 1989-2006

    Years worked for wages in private sector, 1989-2006

    Assets:

    Ownership of a house or apar tment

    Wealth (Decile of per capita household consumption)

    Self-accessed difference wealth ranking b/w 1989 and 2006

    ="Below secondary"

    ="Professional, vocational training"

    ="Higher"

    Self-reported poor health status [1-excellent, , 5-poor]

    Human capital:

    Age

    Low-skills occupation

    Education="Secondary" - comparison group

    Outcomes: Chi-squared tests: "No view on

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    In your o pinion, what s hould be done with most p rivatized

    companies? They shou ld be

    Re-

    nationalized

    and kept in

    state hands

    Re-

    nationalized

    and then re-

    privatized

    again using a

    moretransparent

    process

    Left in th e

    hands of

    current

    owners

    provided th at

    they payprivatized

    assets worth

    Left in th e

    hands of

    current

    owners

    with nochange

    Revision

    (B1+B2+

    B3=B4)

    Property

    type

    (B1=B2+

    B3+B4)

    Fairnes

    (B2+B3

    B4)

    0.0022 0.0045 -0.0005 -0.0062 0.00 0.32 0.01

    [0.99] [2.54]** [0.19] [3.04]***

    0.0029 0.0034 0.0008 -0.0071 0.03 0.34 0.09

    [0.95] [1.24] [0.21] [2.20]**

    0.0034 0.0008 -0.0018 -0.0024 0.01 0.00 0.49

    [2.97]*** [0.89] [1.35] [2.49]**

    0.0123 0.0128 -0.0254 0.0003 0.97 0.17 0.39

    [1.37] [1.79]* [2.68]*** [0.04]

    0.1294 -0.0009 -0.0650 -0.0636 0.00 0.00 0.88

    [13.40]*** [0.11] [6.56]*** [8.47]***Democracy="Agree with 'Democracy is preferable'" - comparison group

    0.0741 -0.0211 -0.0143 -0.0386 0.00 0.00 0.88

    [5.83]*** [2.05]** [1.04] [3.78]***

    0.0589 0.0029 -0.0600 -0.0018 0.84 0.00 0.00

    [5.09]*** [0.29] [4.54]*** [0.20]

    Market="Agree with 'Market is preferable'" - comparison group

    0.1353 -0.0087 -0.0068 -0.1197 0.00 0.00 0.00

    [11.99]*** [0.92] [0.58] [12.73]***

    0.1013 0.0188 -0.0579 -0.0622 0.00 0.00 0.19

    [8.44]*** [2.04]** [4.77]*** [6.99]***

    -0.0079 -0.0034 0.0071 0.0042 0.13 0.03 0.93

    [2.23]** [1.12] [1.86]* [1.50]-0.0116 -0.0059 0.0037 0.0138 0.00 0.01 0.01

    [2.60]*** [1.70]* [0.82] [4.32]***

    0.0044 0.0102 -0.0035 -0.0111 0.02 0.50 0.08

    [0.67] [1.73]* [0.48] [2.29]**

    Perceptions of government:

    Agree with "Government can be trusted "

    Agree with "There is less corruption in 2006 than in 1989"

    Agree with "Law and order are very important"

    ="Agree with 'Autocracy is preferable'"

    ="Agree with 'Indifferent b/w autocracy and democracy'"

    ="Ag ree with ''Central planning is preferable'"

    ="Agree with 'Indifferent b/w central planning and market'"

    Years had to cu t do wn on basic food cons umption, 1989-2006

    Ideology:

    Communist party members in the family ev er

    Agree with "State s hould own large companies"

    Transition-related hardships:

    Years had to accept wage cuts or wage arrears, 1989-2006

    Years had to sell household assets, 1989-2006

    Outcomes: Chi-squared tests: "No view on

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    In your opinion, what should be done with most privatized

    companies? They should be

    Re-

    nationalized

    and kept in

    state hands

    Re-

    nationalized

    and then re-

    privatized

    again using a

    more

    transparent

    process

    Left in the

    hands of

    current owners

    provided that

    they pay

    privatized

    assets worth

    Left in the

    hands of

    current

    owners with

    no change

    Revision

    (B1+B2+

    B3=B4)

    Property

    type

    (B1=B2+

    B3+B4)

    Fairness

    (B2+B3=

    B4)

    -0.0159 0.0209 -0.0145 0.0095 0.10 0.03 0.79

    [2.13]** [3.49]*** [1.83]* [1.64]

    0.0039 0.0017 -0.0032 -0.0025 0.25 0.14 0.81

    [1.46] [0.80] [1.10] [1.16]

    0.0429 -0.0104 -0.0134 -0.0191 0.12 0.01 0.85

    [2.68]*** [0.79] [0.78] [1.57]

    0.0052 0.0123 -0.0001 -0.0174 0.15 0.75 0.22

    [0.31] [0.97] [0.00] [1.46]

    0.0013 0.0165 -0.0482 0.03050.26 0.97 0.31

    [0.03] [0.46] [0.97] [1.12]

    -0.0259 0.0320 -0.0205 0.0144 0.21 0.12 0.90

    [1.55] [2.49]** [1.32] [1.25]

    0.0272 0.0611 -0.0764 -0.0119 0.54 0.20 0.92

    [1.28] [3.01]*** [3.22]*** [0.61]

    0.0028 -0.0122 -0.0056 0.0151 0.46 0.92 0.45

    [0.09] [0.48] [0.17] [0.74]

    0.0210 -0.0139 -0.0358 0.0287 0.03 0.21 0.00

    [1.25] [1.10] [2.15]** [2.20]**

    0.0068 0.0275 -0.0230 -0.0113 0.30 0.61 0.49

    [0.51] [2.33]** [1.51] [1.03]

    Country dummies Yes*** Yes*** Yes*** Yes***

    Observations

    Pseudo R-squared

    Log Likelihood

    Chi-squared

    Panel B. Interactions

    -0.0004 -0.0018 -0.0001 0.0022 0.00 0.74 0.01

    [0.33] [2.25]** [0.05] [3.07]***

    -0.0022 -0.0016 0.0015 0.0022 0.04 0.11 0.30

    [1.61] [1.38] [1.02] [2.10]**

    All baseline covariates and country dummies Yes*** Yes*** Yes*** Yes***

    Observations 19733 19733 19733 19733

    Pseudo R-squared

    Basic controls:

    Gender [Male compared to Female]

    Household size

    Location="Metropolitan area" - comparison group

    ="Rural"

    ="Urban, excluding metropolitan area"

    Religion="Christian" - comparison group

    ="Buddhist"

    ="Atheistic / agnostic / none"

    ="Muslim"

    ="Other"

    Member of an ethnic minority

    Unemployed, 2006

    19738

    0.1

    -23597

    2728.84

    Interaction: Wealth X Education [1-Below secondary; 4-Higher]

    Interaction: Age X High-skills occupation

    0.11

    Outcomes: Chi-squared tests: "No view on.."

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    In your opinion, what should be done with most privatized companies? They should

    be

    Re-

    nationalized

    and kept in

    state hands

    Re-

    nationalized

    and then re-

    privatized

    again using a

    moretransparent

    process

    Left in the

    hands of

    current

    owners

    provided that

    they payprivatized

    assets worth

    Left in the

    hands of

    current

    owners with

    no change

    Revision

    (B1+B2+

    B3=B4)

    Property

    type

    (B1=B2+

    B3+B4)

    F

    (B

    Privatization:

    Interactions with "Moved from wage work to self-employment":

    Moved from wage work to self-employment X Privatization scale in 2006 -0.0018 -0.0379 0.0358 0.0039 0.00 0.53

    [0.09] [2.20]** [1.52] [0.25]

    Moved from wage work to self-employment X Yrs since start of privatization -0.0177 -0.0183 0.0157 0.0203 0.08 0.32

    [1.19] [1.71]* [1.19] [1.77]*

    Moved from wage work to self-employment X Insider privatization 0.0838 0.0054 -0.0739 -0.0153 0.70 0.52

    [1.95]* [0.15] [1.63] [0.38]

    Moved from wage work to sel